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Hi sir
When calculating CFs & we are told that direct overhead costs will be $X, we include these, right?
When do we ignore overhead costs?Thanks
Yes we include direct overheads (unless there is something else in the wording to suggest not to).
The overheads to be careful of are the fixed overheads. We need the extra cost to the business as a whole. If doing the project increases the total fixed overheads then that increase is a relevant cash flow.
However, if the total fixed overheads to the business do not change as a result of doing the project then there is no relevant cash flow (even if they have allocated some of the total to the project – for profit purposes they can do what they like)
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